Disgraced hedge fund mogul Bill Hwang “resorted to reckless and illegal trading” that spurred billions of dollars in losses for big Wall Street banks — even as he invoked Christianity and urged employees to “devote more time to their faith,” an explosive lawsuit from an ex-employee claims.
The $550 million suit accuses Hwang and top executives at Archegos Capital Management of running the now-defunct hedge fund like a religious cult, demanding unswerving devotion to Hwang and pressuring them into participating in unusual and risky financial deals that turned sour.
Specifically, Hwang forced employees into putting at minimum 25% of their annual bonuses into “The Plan,” an investment vehicle that he folded into his own fund, according to the suit filed by former Archegos managing director Brendan Sullivan in the US Southern District of New York.
Employees had to commit to “The Plan” before they learned the size of their bonuses, the suit adds. On Wall Street, bonuses typically make up the majority of a banker’s compensation.
“The message was crystal clear,” according to the suit. “No contribution. No bonus.”
Sullivan alleges Hwang lost $50 million of his rightful compensation — and a total of $500 million for other employees. And even as Archegos executives continue promising employees they’ll pay out the so called “deferred compensation,” no one has seen a dime and they haven’t gotten severance either, the suit claims.
The 93-page complaint paints Hwang as a narcissistic egomaniac who created a “toxic culture” that demanded “unquestioning loyalty” from employees and “tolerated no dissent.” The suit also suggests the “so-called” family office Hwang ran was actually managing other peoples’ money — namely his employees money.
Hwang’s “psychological inability to share credit or fairly compensate his people led him to create the plan so he could award bonuses while not actually losing control,” the suit alleges. And adds the “investment plan was a de facto interest free loan” to Hwang.
A spokesperson for Hwang declined comment.
The name Archegos, meaning “one who leads the way,” is a moniker used in the Greek New Testament for Jesus Christ. Likewise, Hwang viewed himself as divinely appointed to be in control and wanted those who worked for him to be “good followers,” according to the suit.
A former protégé of famed investor Julian Robertson, Hwang opened his family office in 2013 after shuttering two hedge funds following an SEC insider trading probe in 2012. Within a few years, he built the modest operation to a multibillion-dollar empire.
But instead of being run professionally, Archegos “instead was operated like Hwang’s personal fiefdom and platform for him to pursue his oft-stated grandiose goal of becoming ‘the richest person in the world,’” according to the suit.
Hwang told employees to “devote more time on their faith” in performance reviews, according to the suit. Hwang would also hold mandatory annual weekend retreats where employees felt pressured into publicly expressing their gratitude for “God, Hwang and Archegos,” the suit alleges.
When employees would question one of Hwang’s investment decisions over email, Hwang responded by cc’ing the entire firm and disparaging the employee, the suit claims.
Hwang relied on massive leverage and risky derivatives to take concentrated positions. When the massive bets he’d made on ViacomCBS and Discovery went south, he failed to meet margin calls and his brokers tried to liquidate their positions — his collateral — as quickly as possible.
The move spurred a frantic, market-melting fire sale that left Credit Suisse with more than $5 billion in losses and Japanese bank Nomura with $3 billion in losses. US banks like Goldman Sachs were quicker to get out of their positions and escaped the incident largely unscathed.
“Hwang initially generated significant returns in strong markets, but ultimately succumbed to a narcissistic and unsustainable need to always generate extraordinary returns irrespective of market conditions even if he needed to break the law to do so,” the suit says of his downfall.
Hwang guaranteed employees only upside and promised if he lost any of the money he would personally make it up to them, but when the fund imploded they were left high and dry, the suit claims.
The employee lawsuit comes just days after Hwang’s lawyers filed a motion to dismiss a fraud case brought against him and top Archegos executives by the Securities and Exchange Commission. The attorneys argued that Hwang merely bought concentrated positions and that such moves don’t count as market manipulation.
Hwang’s lawyers also maintained his innocence after he and the fund’s ex-financial chief Patrick Halligan were arrested in May by federal agents on criminal charges including securities fraud, wire fraud and racketeering. Halligan’s lawyer also maintained he was innocent.
Hwang was released on $100 million bail he made by paying $5 million in cash and using two properties to secure the bond. He also surrendered his wife’s passport – he told prosecutors he had lost his own – and promised to stay in the Tri-State area.